The APMG PPP Certification Guide, referred to here as the PPP Guide, is the Book of Knowledge
(BoK) detailing all relevant aspects of creating and implementing efficient, sustainable public-
private partnerships (PPPs). It is intended for use by PPP professionals, governments, advisors,
3
investors, and others with an interest in PPPs. The PPP Guide is part of the family of CP P
credentials that, once obtained, allow individuals to use the title Certified PPP Professional, a
designation created under the auspices of the APMG PPP Certification Program. The APMG
PPP Certification Program, referred to here as the Certification Program, is an innovation of the
Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD),
the Inter-American Development Bank through its Multilateral Investment Fund (IADB through its
MIF), the Islamic Development Bank (IsDB) and the World Bank Group (WBG) funded by the
Public-Private Infrastructure Advisory Facility (PPIAF).
DISCLAIMER
The opinions, interpretations, findings, and/or conclusions expressed in this work are those of the
authors and do not necessarily reflect the views or the official policies or positions of the ADB,
EBRD, IADB through its MIF, IsDB, PPIAF and WBG, their Boards of Directors, or the
governments they represent. The above referenced organizations do not make any warranty,
express or implied, nor assume any liability or responsibility for the accuracy, timeliness,
correctness, completeness, merchantability, or fitness for a particular purpose of any information
that is available herein.
This publication follows the WBGs practice in references to member designations and maps. The
designation of or reference to a particular territory or geographic area, or the use of the term
country in this document, do not imply the expression of any opinion whatsoever on the part of
the above referenced organizations or their Boards of Directors, or the governments they represent
concerning the legal status of any country, territory, city or area, or of its authorities, or concerning
the delimitation of its frontiers or boundaries.
The material in this work is subject to copyright. Because the above referenced organizations
encourage dissemination of their knowledge, this work may be reproduced, for non-commercial
purposes, in whole or in part with proper acknowledgement of ADB, EBRD, IDB, IsDB, MIF and
WBG funded by PPIAF. Any queries on rights and licenses, including subsidiary rights, should be
addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington,
DC 20433, USA; fax: 202-522-2625; email: pubrights@worldbank.org.
Tables
TABLE 2.2: Examples PPP Policy Objectives ......................................14
TABLE 2.1: Example Definitions of PPP Framework Scope.................19
TABLE 2.2: Legal Traditions and PPP Types in Civil and Common
Law Countries ................................................................................24
TABLE 2.3: Summary of Decision Criteria, Procedures and
Institutional Responsibilities across the PPP Process ....................39
TABLE 2.5: Examples of Procurement Strategies for Unsolicited
Proposals .......................................................................................59
TABLE 2.6: Example PPP Approval Requirements ..............................71
TABLE 2.7: PPP unit Examples............................................................76
Figure
FIGURE 2.1: Process for assessing, approving and bidding an
unsolicited proposal........................................................................63
Boxes
BOX 2.1: Learning Objectives ................................................................5
BOX 2.2: Conflicting Objectives and Risks in PPPs ...............................8
BOX 2.3: A PPP project without a Framework......................................10
BOX 2.4: Distortionary Taxes of Operations and Maintenance
(O&M) Contracts ............................................................................35
BOX 2.5: The Role of Sub-National PPPs ............................................37
BOX 2.6: Investment Decision versus a PPP Decision ........................43
BOX 2.7: PPP Appraisal Criteria in Indonesia ......................................47
BOX 2.8: Model and/or Precedent Contracts........................................48
BOX 2.9: Engagement and Communication with Stakeholders ............50
BOX 2.10: Renegotiation of a Public Transport PPP in Victoria,
Australia .........................................................................................53
As highlighted in chapter 1.8.2 of the PPP Guide, there are a number of risk
factors related to not having a framework. PPP frameworks address those
risks and increase the likelihood that PPPs will succeed.
1 Deloitte and Touche USA LLP have developed a PPP Market Maturity Curve that shows how
jurisdictions generally work up to the full operation of the PPP Program, starting with a simple
framework and a small number of projects. Refer to UNECE (2008) Guidebook on Promoting good
governance in PPPs for more information.
11
2
The government would still want to follow good practice in doing the one PPP, but it would not need to
codify general approaches and capacitate multiple agencies. Developing good practice for a single
project is a lot easier than developing processes and rules that will work well for all projects, so
investing in a framework is worthwhile only when it is expected that it will be applied to multiple
projects.
13
3
Government of Australia (2008) National PPP Guidelines-PPP Policy Framework, p3.
4
Ministry of Finance of the Republic of Bulgaria (n.d.) Public Private Partnership. [Online] Available at
http://www.minfin.bg/en/page/750
5
Government of India (2011) National Public Private Partnership Policy-Draft, p8.
14
The PPP framework should reduce the risk that PPPs are used for the wrong
reasons. Some governments have used PPPs to reduce reported levels of
government expenditure and borrowing, even when the long-term fiscal
implications of the PPP projects were similar to those of a publically financed
6
Government of Indonesia (2005) Presidential Regulation No. 67 concerning Government Cooperation
with Business Entities in the Supply of Infrastructure, as amended by Government of Indonesia (2011)
Presidential Regulation No. 56, chapter 2, article 3.
7
Legislative Assembly of the State of So Paulo, Brazil (2004) Law 11688 ("PPP Law"). So Paulo,
Article 1.
8
General Congress of the United States of Mexico, 2012. Ley de Asociaciones Publico Privadas (PPP
Law), Article 1.
9 HM Treasury (2012) A new approach to public private partnerships. Crown, London, p 15
15
Jurisdiction
The scope of any PPP framework will be limited by the jurisdiction of the
government that promulgates it. It is natural to think of national governments
that set PPP policies for their country, but what about different levels of
government?
In federal systems, any PPP framework promulgated by the federal
government can only extend to PPPs that fall within the governments
competence as set out in the constitution. These competencies differ from
country to country, but are often quite limited. For example, in the United
States (US), PPP frameworks are developed by the states; the federal
government is responsible for relatively little infrastructure. In India, while
states can develop their own PPP frameworks, the Union Government,
through the PPP cell in the Department of Economic Affairs, leads the
development of the PPP framework. In Canada, PPP frameworks are
developed at the provincial level (the Canadian Government also has its own
PPP program, for other national projects). Box 2.5 in section 1.5.4 provides
more detail on sub-national PPPs.
In non-federal systems, there may be sub-national governments at a second
level of government with competence in certain infrastructure and services
that develop PPP frameworks. For example, in Spain the central government
retains the powers to promote national interest infrastructures, while the
regional governments (Comunidades Autnomas) have the competence to
procure linear transport infrastructure (as long as the infrastructure is entirely
within its territory). They also have the exclusive competence to procure social
infrastructure (courts, schools and hospitals).
The extent to which national governments control the PPP projects and
frameworks of local governments is an even more complex question and
one that in federal systems can vary from state to state. For example, in
South Africa, the National Treasury must review and comment four times
during the development of PPPs at the municipal level to ensure that
government procedures are followed and contingent liabilities are controlled.
Technically, the reviews are advisory only, but in fact serve as de facto
16
Sector
When governments intend to focus PPPs on just a few sectors, the framework
may be designed with these sectors in mind. Further, the application may be
explicitly limited to those sectors. South Africa created a PPP framework
explicitly for highways (as well as a separate, more tailored framework for
other PPPs). The Philippines created a special regime for privately-financed
power plants.
Other PPP programs and their governing frameworks may cover multiple
sectors, but still set limits. As an example, the framers of Singapores PPP
policy (2004) limited its scope to those sectors in which other similar
countries have had proven success with PPP, including sports facilities,
incineration plants, water and sewage treatment works, major information
technology (IT) infrastructure, education facilities, hospitals and polyclinics,
expressways, and government office buildings.
Size
Many governments define a minimum size (or value) for PPP projects
implemented under the PPP framework. The relatively high transaction costs
of implementing a PPP can make PPPs below a certain size unviable. A size
limit may mean PPP type contracts cannot be used for smaller projects. For
example, Singapores PPP policy (2004) states that, initially, PPPs will be
pursued only if they have an estimated capital value of over US$50 million.
Brazils PPP law (Law 11079 2004) sets a minimum size of 20 million reals
(US$11.7 million equivalent) for individual projects.
In some jurisdictions, small projects are bundled as a way of economizing
transaction costs. For example, the Pennsylvania Bridges Project bundles the
rehabilitation of 558 bridges spread across several counties across the state
into one large project. The concessionaire is required to complete
construction by the end of 2017 (within three years of signing the contract)
10
South Africa National Treasury PPP Unit, 2007. Municipal Service Delivery and PPP Guidelines.
17
Contract Type
The scope can also define specific aspects of the contracts that will be
considered. Chapter 1 describes the range of contract types within the PPP
family.12 Many frameworks are explicitly limited to a particular subset of this
range, while others attempt to allow and control PPPs of almost any type
within a single framework. For example, Indias draft National PPP Policy
(2011) describes the types of contracts that are considered as PPPs, types of
contract that will not be used (those involving private ownership of assets),
and those that are not covered by the PPP policy (Engineering-Procurement-
Construction (EPC) contracts, and divestiture of assets). Brazils PPP law
(Law 11079 2004) and Chiles Concessions Law (Law 20410, 2010) both
define limits on the contract duration: in Brazil, it is a minimum of five years,
and in Chile, it is a maximum of 50 years.
Typically, the legal traditions of the country will influence the type of contract
for which the PPP framework will apply to. This is discussed in detail in
section 1.5. In summary, the two main categories of contracts are:
11 Refer to http://www2.news.gov.bc.ca/news_releases_2005-2009/2008FIN0019-001677.htm
12 Refer to sections 0.2 and 0.3.
18
13
The scope for the PPP Framework in France has expanded. In 2004 the French government created
a new framework for government-pays PPPs under the contrat de partenariat (partnership contract)
14
Government of Australia (2008) National PPP Guidelines-PPP Policy Framework, section 3.1.3, p6.
15
National Congress of Brazil (2004) Law 11079 ("Federal PPP Law"). Article 2, p4.
16
National Congress of Chile (2010) Law 20410 ("Concessions Law").
19
17
Congress of Colombia (2011) Law 1508 ("PPP Law"), Article 3 and 6.
18
Salario 2015 = 644.336 equivalente a 350 dlares. Source: http://www.salariominimo2015.com/
19
Government of India (2011) National Public Private Partnership Policy-Draft, p6. Note that this policy
was under revision during the time of drafting this PPP Guide (July, 2015).
20
Government of Mauritius, 2003. Public Private Partnership Policy Statement, Section 5, p4.
21
General Congress of the United States of Mexico, 2012. Ley de Asociaciones Publico Privadas (PPP
Law).
20
Unified Frameworks
In countries with established PPP programs, PPP frameworks are often
applied across all sectors and, in some cases, across multiple jurisdictions
within a country (federal, state and local). An example of such a framework is
Australias National PPP policy framework; it applies to all significant public
infrastructure (both economic and social infrastructure and their related
services) procured by commonwealth, state and territory governments.
A unified framework can simplify things for agencies interested in developing
a PPP as well as for prospective investors. Unified rules and processes result
in greater efficiency for the private sector, and hence greater bidder interest.
Investors often view governments as monolithic, thus expecting that
governments will adopt consistent practices across sectors. Moreover, many
PPP issues are the same regardless of the sector or jurisdiction, so a single
set of well-designed rules may serve a governments well.
However, there are also disadvantages in trying to create unified frameworks
across sectors and jurisdictions.
22
Commonwealth of Puerto Rico, 2009. PPP Act No. 29, Section 3.
23
Government of Singapore, 2004. Public-Private Partnership Handbook, Section 1.4.2, p8.
21
24
Dumol (2000) The Manila Water Concession: A Key Government Officials Diary of the Worlds
Largest Water Privatization. World Bank
25
Republic of South Africa National Treasury Department (n.d.) About the PPP Unit. [Online] Available
at http://www.ppp.gov.za/Pages/About.aspx
22
1.5.1 How Varying Legal Traditions Interact with Different PPP Types
Countries vary widely in how they document and give force to PPP
frameworks. Countries with common law27 legal systems tend to rely on
26
Romanian Department for Foreign Investments and Public-Private Partnership. The New Law on
Public-Private Partnership. [Online] Available at http://dpiis.gov.ro/new_dpiis/en/public-private-
partnersip/department-attributions/
23
TABLE 2.2: Legal Traditions and PPP Types in Civil and Common Law Countries
Government-pays PPPs
Historically UK and
(PFI-style contracts) Later development of Australia
the framework
27
Common law is generally uncodified. This means that there is no comprehensive compilation of legal
rules and statutes. Although common law does rely on some scattered statutes, which are legislative
decisions, it is largely based on precedent, meaning the judicial decisions that have already been
made in similar cases (University of California at Berkeley).
28
Also referred as the civil code. Civil code or civil law is codified. Such codes distinguish between
different categories of law: substantive law establishes which acts are subject to criminal or civil
prosecution, procedural law establishes how to determine whether a particular action constitutes a
criminal act, and penal law establishes the appropriate penalty. In a civil law system, the judges role
is to establish the facts of the case and to apply the provisions of the applicable code. Much civil law
originates from Code Napoleon. (University of California at Berkeley)
29
McCarthy, S. and Perry, J. (1989) BOT Contracts for Water Supply. London: World Water.
24
30
Refer to Section 0.4. for an introduction of terms used that may refer to a PPP transaction.
31
Pezon, C. (2011) How the Compagnie Ge'ne'rale des Eaux survived the end of concession contracts
in France 100 years ago. Water Policy, Volume 13, pp. 178-186.
32
Eldem, E. (2005) Ottoman financial integration with Europe: foreign loans, the Ottoman Bank and the
Ottoman public debt. European Review, 13(03), pp. 431-445.
33
McCarthy, S. and Perry, J. (1989) BOT Contracts for Water Supply. London: World Water.
25
34
There were exceptions. Passenger rail services were loss making and needed government subsidies,
so these were structured under contractual franchises that could properly be described as public-
private partnerships. A similar approach was followed with the franchising of tram and train services in
the State of Victoria, Australia in 1999.
35
The Port Authority of New York and New Jersey. History of the Port Authority (n.d.). [Online] Available
at http://www.panynj.gov/about/history-port-authority.html; Washington Metropolitan Area Transit
Authority (2015) About Metro. [Online] Available at http://www.wmata.com/about_metro/?
36
In principle it would have been possible to pay private providers to provide the full educational and
medical services. Privately-owned schools could have taught children at no cost to the families, to
established national standards, and been paid by the government to do it. In fact, since 2000 in the
health sector, the UK has adopted such an approach under the rubric Independent Sector Treatment
Centers. These centers perform routine operations under contract to the publicly funded National
Health Service. However, in the 1990s when the PFI program was established, fears of union and
popular opposition to privatization of services in these ways meant the focus was on private
provision of facilities, not the full service, and it is this focus that has been most widely imitated
internationally.
26
37
Hodge, G. A. & Greve, C. (2005) The Challenge of Public-private Partnerships: Learning from
International Experience. Northampton: Edward Elgar Publishing.
38
State Government of Victoria (2013) About Partnerships Victoria. [Online] Available at:
http://www.dtf.vic.gov.au/Infrastructure-Delivery/Public-private-partnerships/About-Partnerships-
Victoria
39
The Commonwealth is a voluntary association of 53 independent and equal sovereign states. Its
origins go back to the British Empire when some countries were ruled directly or indirectly by Britain.
Membership today is based on free and equal voluntary co-operation; no historical ties to the British
Empire are required.
40
European PPP Expertise Centre (2012) France: PPP Units and Related Institutional Framework.
27
41
The first government-pays PPPs in Mexico were called proyectos de prestation de servicios or service
provision projects (PPS) and had to rely on two regulations: the concession regulations to grant the
title to operate economically the asset, and the leasing law (Arrendamientos), as the concession
contract as established did not contemplate the service payments as a revenue or compensation form
to the private partner. APP legislation (both at Federal government and state level) has solved this
issue.
28
42
HM Treasury (2013) Public Private Partnerships. [Online] Available at:
http://webarchive.nationalarchives.gov.uk/20130107105354/http://www.hm-
treasury.gov.uk/infrastructure_public_private_partnerships.htm
43
Infrastructure Australia (2008) National Public Private Partnership Guidelines Overview.
Commonwealth of Australia.
44
Development Bank of Jamaica Limited (2012) Shaping New Partnerships For National Development.
29
Some common law jurisdictions pass PPP laws, for a variety of reasons
45
In the Westminster system, the leader of the executive branch (the Prime Minister) is the leader of the
party able to command a majority in the legislature. Cabinet members are appointed by the Prime
Minister from among members of the legislature. Although this is often said to imply legislative control
of the executive, in reality it tends to create a legislature that follows the lead of the executive.
46
Koopmans, T. (2003) Courts and Political Institutions. Cambridge University Press, p180-182.
30
47
Reese., B. (2008) Virginia s Public-Private Partnership Program. Commonwealth of Virginia: Office of
the Secretary of Transportation, U.S.A.
48
California Department of Transportation: Official Website. [Online] Available at:
http://www.dot.ca.gov/hq/innovfinance/public-private-partnerships/PPP_main.html
31
49
Energy and Infrastructure Unit and Finance and Private Sector Development Unit (2006) India
Building Capacities for Public-Private Partnerships. South Asia Region. The World Bank.
50
Government of Kenya (n.d.). Legal and Regulatory Framework. [Online] Available at:
http://pppunit.go.ke/index.php/legal-regulatory-framework
51
Republic of the Philippines (2012) The Philippine Amended BOT Law R.A.7718.
32
The PPP framework can be used to reduce the need for court action
The PPP framework should be explicit about mechanisms that are used to
reduce the need for court action. In many countries, it can take years for
disputes to be resolved through the courts. Court processes can also be
expensive. They rely on judges who are typically not familiar with the complex
and technical matters involved in PPP contracts. For this reason, it is often a
good idea to include alternative dispute resolution mechanisms in contracts.
Mediation and arbitration provisions are often included (options to solve
disputes and the role of dispute resolution processes are explained further in
chapter 5.8). Enforcement mechanisms that reduce the need for court action,
such as escrow accounts and performance bonds, can also be useful tools.
52
Koopmans, T. (2003) Courts and Political Institutions. Cambridge University Press, pp. 135-147.
53
Shugart, Chris. (1998) Regulation-by-Contract and Municipal Services: The Problem of Contractual
Incompleteness. Ph.D. thesis, Harvard University.
54
European PPP Expertise Centre (2012) France: PPP Units and Related Institutional Framework.
33
55
Groom, E., Halpern, J. and Erhardt, D. (2006) Explanatory Notes on Key Topics in the Regulation of
Water and Sanitation Services. World Bank Group, Bank Netherlands Water Partnership, Public
Private Infrastructure Advisory Facility.
34
Brazil: Under the turnover tax system in Brazil, the operating cost of the
Curitiba Metro in the state of Parana increases by an estimated 6 percent
per year in cases in which there is a separate O&M contractor through a
PPP. This compares with the fiscally neutral position in which the O&M is
carried out by the Concessionaire
India: The subcontracting of O&M services attracts services tax (currently
at 12.36 percent, and set to increase to 14 percent), while the same
service of O&M if performed by the concessionaire directly does not
attract the services tax. This means that subcontracting becomes a
burden on the PPP project, affecting its financial viability. Instead of
subcontracting to specialists to mitigate risk and improve the quality of
project delivery, the concessionaire is instead incentivized to undertake
the works.
Source: KEOLIS South Africa
Sector regulation may also constrain how the government may develop and
manage PPP contracts. For example, concessions for utility services may be
governed by public utility regulation. Essential infrastructure may be subject to
open access rules under competition law.
35
56
State is used as a generic term that includes provinces (for example, in Canada or China) or any
other second tier of government within a federal system.
57
The Department of Infrastructure and Regional Development (2013) Local Government infrastructure.
[Online] Available at: http://www.regional.gov.au/local/publications/reports/2002_2003/C4.aspx
58
U.S. Department of Transportation Federal Highway Administration (n.d.) TIFIA. [Online] Available at:
http://www.fhwa.dot.gov/ipd/tifia/
36
59
HM Treasury (2012) A New Approach to Public-Private Partnerships. Crown.
60
Infrastructure Australia (2008) National Public Private Partnership Guidelines Overview.
Commonwealth of Australia.
61
PPP Canada (n.d.). The P3 Canada Fund: How to Apply. [Online] Available at
http://www.p3canada.ca/en/apply-for-funding/
37
62
The Department of Defence runs a large PPP Program for services on buses.
38
39
40
Neither this chapter nor the remainder of the PPP Guide discuss in detail
general project governance frameworks or project management techniques.
Instead this PPP Guide simply draws attention to this where they are relevant.
For example, stakeholder identification and management is paramount, as for
any government project. Specific reminders of this are included in this
chapter as a part of the overall process framework (such as in box 2.10).
Similarly, chapter 3 includes both a description of matters to be considered
when planning the management of the PPP process for a project (see chapter
3.11), and stakeholder management and communication matters (chapter
3.12).
41
Decision criteria
The framework should ensure that only projects that meet the following
criteria proceed:-
The project fits in with a broader plan for the sector. Sector plans will
consider the needs of the sector and identify the best approaches to
address problems. The projects that are most likely to demonstrate
Value for Money are those that align with this sector plan;
42
63
Line agencies are responsible for policy development, planning, and the delivery of specific
services. This is in contrast to central agencies which have whole-of-government policy
responsibilities.
43
If Value for Money is not achieved through a PPP tender process, the
investment can go ahead under a different procurement methodology.
However, in reality many governments do not develop comprehensive
strategic planning processes in each sector, nor do they undertake systematic
cost benefit and technical analysis of all projects. Therefore, a jurisdiction that
does not routinely do such analysis can do one of two things.
Decision criteria
At this stage, the framework should ensure that only those projects which are
good projects and suitable for PPPs proceed to development. Good projects
can be defined as follows.
Value for Money: PPPs are just one form of procurement. A PPP is
considered Value for Money if the project is expected to deliver higher
net economic benefits if done as a PPP.
There are many ways of assessing Value for Money. The traditional
approach developed in the UK and used in many Australian
jurisdictions as well is to determine whether a PPP will have a lower
(risk-adjusted) cost to the government than a conventional
procurement. The assumption in this approach is that the private
company can be incentivized to manage risks better than the public
sector, thereby improving overall economic outcomes.
Another approach is to see which delivery option will maximize benefits
for a given budget. In New Zealand, the test is which approach is likely
to deliver greater net economic benefits.
Value for Money is usually assessed in a qualitative way during an
initial screening stage under what are sometimes called PPP suitability
tests (see chapter 3.10), and it is then quantified if the project moves
on to a full appraisal.
It is important to recognize the limitations of quantitative Value for
Money analyses. They are necessarily based on assumptions and
forecasts, so they will only indicate whether the chosen procurement
method will deliver higher net economic benefits. Because of this, in
Canada the outcomes of quantitative Value for Money analysis are
treated as an estimate only and in some cases are used amongst other
qualitative indicators to select a procurement option;
64
The relationship with other contracts or activities of the government, or dependencies of the
government, on the successful performance of the PPP contract.
45
The required content of the PPP appraisal: This includes the studies
that need to be done (for example, demand forecasts) and the
questions that need to be answered to determine if a project is
economically, financially, technically, environmentally, and legally
feasible (the PPP appraisal is also called a business case or feasibility
study); and
46
Decision criteria
The procurement process, the tender documents, and the contract need to
achieve government objectives while minimizing expected costs. In addition,
the contract must be one that the government is capable of managing. The
contract must be attractive to potential private partners, and stakeholders
must be convinced it is in the public interest. PPP frameworks should
therefore be designed to ensure that the following:-
47
How to gain approval for tender: As with the previous two phases, the
PPP framework will need to identify the approval process for
proceeding to the next phase.
65 According to the UNECE, PPP models and procedures can contribute to achieving the Sustainable
Development Goals across a wide spectrum of different sectors like water and sanitation, health and
renewable energy. With this aim, the UNECE, through its International PPP Center of Excellence, is
developing a number of international PPP sets of standards (http://www.unece.org/ceci/ppp.html). To
learn more about the SDGs, see http://www.undp.org/content/undp/en/home/mdgoverview/post-2015-
development-agenda.html.
49
66 East West Link: Taxpayers hit with $339 million bill as Government strikes deal to scrap East West
Link (15 April, 2015). ABC News. Accessed online July 2015 at http://www.abc.net.au/news/2015-04-
15/victorian-government-to-pay-339-million-east-west-link-contracts/6393536
50
At the end of the transaction, after bids are received and the contract agreed,
the government will finally know the cost of the PPP project and other terms.
At this point it may be checked once more to ensure it still meets the PPP
criteria. Cancelling a project, however, at the end of procurement is
undesirable and can damage the market reputation of the jurisdiction. There
are significant costs involved in preparing a bid, so unless the market has
confidence that the project will proceed, the private sector will be unlikely to
participate. To make sure that projects are not cancelled at the end of the
procurement process, the PPP framework should set out the circumstances
under which a project will not proceed. For example, in some jurisdictions
(such as Canadas British Columbia), affordability ceilings are revealed to
ensure the market knows the maximum that the public sector is willing to pay.
Decision criteria
To test if the procurement was appropriate, the following criteria are helpful.
51
Has the process been transparent and conducted with integrity and
fairness? The way that the award process is administered should be
clearly communicated and responsibilities clearly allocated. The criteria
for award should be transparent, with a well-defined objective,
qualification criteria, technical specifications, and bidding requirements.
The tender process should ensure that all bidders are treated fairly.
Reaching financial close. After the contract has been agreed, the
financiers (in particular debt providers) need to agree to provide the
funding. Often the financiers of the project company want to change
some of the conditions that were agreed at commercial close. The
framework should address this risk, containing processes to reduce
delays and contractual changes in getting to financial close. It should
also make it clear who is responsible (on the government side) for this
process, and what approvals are needed if it seems necessary to
agree to changes to the contract in order to reach financial close.
Refer to chapter 6 for details on how to tender and award a PPP contract.
52
Decision criteria
The PPP framework should ensure that the project is managed in such a way
that if there are any issues with the project, they are communicated by the
concessionaire to the implementing agency, and, if required, to relevant
central government agencies. A strong operations team and governance
mechanisms for reviewing performance and escalating issues (such as
contract management frameworks, monitoring requirements, and risk
management processes) will better equip the government to manage the PPP
and make hard decisions, such as contract renegotiation or termination if
needed. Governance mechanisms can also help the government agency to
be a good working partner which private parties can have confidence.
A robust PPP framework and process should help to ensure that PPP contract
agreements are designed to withstand unexpected events after contract
execution, without a need for contract renegotiation. Sometimes, however,
renegotiation rather than termination or abandonment may be preferable to
preserve some of the benefits of the PPP. In these cases, the renegotiation
process needs to be carefully managed by the government, with proper
resources and a proper governance structure. The objective of renegotiation
should be to secure an outcome that meets the objectives of the public sector
better than would adherence to the original contract terms.
Contracts are sometimes renegotiated in order to prevent operators walking
away. When a project is underway, it may become clear that the original
terms and risk allocation are not always fully appropriate. When risk allocation
can be adjusted while still achieving a net benefit when compared to the
alternative of cancellation, renegotiation should be considered. Advisors may
need to be re-engaged at this stage (an example of such a renegotiation is in
Victoria, Australia, described in box 2.10).
55
56
Developers fee the firm that made the original offer is paid a fee by
the government or the winning bidder. The fee can simply reimburse
some project development costs, or be set to provide a return on
developing the project concept and proposal. This is one option for
dealing with unsolicited proposals permitted in Indonesia under the
presidential regulations governing PPPs;70 and
67
As set out in Hodges and Dellacha (2007) Unsolicited Infrastructure Proposals: How Some Countries
Introduce Competition and Transparency.
68
As described further in Reddy & Kalyanapu (undated) Unsolicited Proposal-New Path to Public-
Private Partnership: Indian Perspective.
69
South Africa National Roads Authority (1999) Policy of the South African National Roads Agency in
Respect of Unsolicited Proposals.
70
Government of Indonesia (2005) Presidential Regulation No. 67 concerning Government Cooperation
with Business Entities in the Supply of Infrastructure, as amended by Government of Indonesia (2011)
Presidential Regulation No. 56.
71
Government of Chile (2010) Regulation No. 956 of Public Works Concessions (Reglamento de
Concesiones de Obras Publicas).
57
72
Hodges & Dellacha (2007) reviewed several countries experience with unsolicited proposals in
Appendix B of Unsolicited Infrastructure Proposals: How Some Countries Introduce Competition and
Transparency.
58
73
Government of Chile (2010) Regulation No. 956 of Public Works Concessions (Reglamento de Concesiones de Obras Publicas), Title II: Bids Submitted by
Private Parties.
74
Government of Indonesia (2005) Presidential Regulation No. 67 concerning Government Cooperation with Business Entities in the Supply of Infrastructure, as
amended by Government of Indonesia (2011) Presidential Regulation No. 56, Chapter IV.
TABLE 2.5: Examples of Procurement Strategies for Unsolicited Proposals
75
President of the Republic of Italy (2006) Legislative Decree 163: Code for Public Contracts for Works, Services and Supplies in the Implementation of Directives
2004/17/CE e 2004/18/CE, Articles 156-155.
76
Kim, Kim, Shin and Lee (2011) Public-Private Partnership Infrastructure Projects: Case Studies from the Republic of Korea, Volume 1: Institutional
Arrangements and Performance, pp. 67-69.
TABLE 2.5: Examples of Procurement Strategies for Unsolicited Proposals
77
Philippines BOT Center (1993) The Philippine BOT Law (Republic Act No. 7718) and its Implementing Rules & Regulations, Rule 10.
78
South Africa National Roads Authority (1999) Policy of the South African National Roads Agency in Respect of Unsolicited Proposals.
79
The Commonwealth of Virginia (2005) Public-Private Transportation Act of 1995 (as Amended) Implementation Guidelines.
Dealing with intellectual property
To encourage market-initiated proposals, the government needs to commit to
protecting intellectual property. Without such protection, there is little incentive for
the private party to invest in any new or innovative ideas. There are various
approaches to dealing with intellectual property in an unsolicited proposal.80
In cases where the intellectual property is crucial to the project, such that it
could not be implemented otherwise, direct negotiation may be warranted,
along with procedures to benchmark project costs.
The government of New South Wales in Australia provides guidance for
practitioners on handling intellectual property,81 and it allows direct negotiation of
the PPP in certain circumstances. Proponents agree that they must identify any
intellectual property they wish to protect (subject to agreement with the
government). The project is then tendered based on output specifications without
revealing technology information if possible. If the intellectual property is crucial
to the existence of the service need, the government negotiates with the
proponent to obtain the rights to the necessary intellectual property before
procuring the project competitively. In contrast, in some civil law countries the
approach to intellectual property is codified in law, and so not subject to
negotiation.
80
As described in UNCITRAL (2001) Legislative Guide for Privately-Financed Infrastructure Projects section
on unsolicited proposals pp. 91-97.
81
New South Wales Treasury (undated) Intellectual Property Guidelines for Unsolicited Private Sector
Proposals Submitted Under Working with Government.
82
Hodges and Dellacha (2007) Unsolicited Infrastructure Proposals: How Some Countries Introduce
Competition and Transparency.
62
Source: Based on Hodges and Dellacha (2007) Unsolicited Infrastructure Proposals: How Some Countries
Introduce Competition and Transparency.
It is worth considering specifying time periods within which each of these steps
will be taken.84 On the one hand, specific deadlines within which the government
83
As described in Kim, Kim, Shin and Lee (2011) Public-Private Partnership Infrastructure Projects: Case
Studies from the Republic of Korea, Volume 1: Institutional Arrangements and Performance.
84
Hodges and Dellacha (2007) describe the benefits and risks of doing so in Unsolicited Infrastructure
Proposals: How Some Countries Introduce Competition and Transparency.
63
85
Philippines BOT Center (1993) The Philippine BOT Law (Republic Act No. 7718) and its Implementing
Rules & Regulations.
64
65
86
Philippines BOT Center (1993) The Philippine BOT Law (Republic Act No. 7718) and its Implementing
Rules & Regulations.
87
The United Republic of Tanzania (2010) Public Private Partnership Act 2010.
88
Unidad de Proyectos de Asociacin Pblico-Privada.
89
Government of Colombia (2010) Manual de Procesos y Procedimientos para la ejecucion de Asociaciones
Publico Privadas (Process and Procedures Manual for PPP Projects), Chapter 4.2, p 34.
66
90
As described in Castalia (2009) Benchmarking Indonesias PPP Program report to the World Bank, p. 21.
67
91
Zevallos Ugartes book (2011) Concesiones en el Peru: Lecciones Aprendidadas (Concessions in Peru:
Lessons Learned), s.l.: Fondo Editorial de la USMP provides further details on the institutional framework
for implementing PPPs.
92
Monteiro (2007) PPP and Fiscal Risks: Experiences from Portugal, pp. 6-8.
68
93
State Government of Victoria (2013) About Partnerships Victoria. [Online] Available at
http://www.dtf.vic.gov.au/Infrastructure-Delivery/Public-private-partnerships/About-Partnerships-Victoria
94
Philippines National Economic and Development Authority (2004) ICC Project Evaluation Procedures and
Guidelines.
95
Philippines National Economic and Development Authority (2004) ICC Project Evaluation Procedures and
Guidelines.
96
National Congress of Chile (2010) Law 20410 ("Concessions Law") Article 8.
69
1.7.5 Approvals
Most governments have rules for approving capital investment projects that is,
defining who can give approval at various points in the life of the project for the
project to proceed to the next phase. Because PPPs often do not require capital
investment by the government, they may not automatically be subject to these
approval rules. Many governments therefore define similar approval requirements
for PPPs.
Often, several decision points are created, allowing weak projects to be stopped
before they consume too many resources or develop a momentum of their own.
At a minimum, approval is typically needed to enter into a PPP transaction.
Because the final cost of a project is not known until procurement is concluded,
final approval may be needed before the contract is signed.
Jurisdictions vary as to which entity can approve a PPP. A few countries require
legislative approval of projects. More often, approval may come from the cabinet
or a cabinet level committee, the finance ministry, or a combination of agencies
and authorities. Approval responsibilities may depend on the size of the project,
as is typically the case for other capital investments.98
97
The United Republic of Tanzania (2010) Public Private Partnership Act. 2010, pp. 15-16.
98
As described in Irwin (2007) Government Guarantees: Allocating and Valuing Risk in Privately Financed
Infrastructure Projects.
70
99
New South Wales Government (2012) NSW Public Private Partnership Guidelines.
100
National Congress of Chile (2010) Law 20410 ("Concessions Law") Article 7, 20 and 28.
71
101
The United Republic of Tanzania (2010) Public Private Partnership Act. 2010, Section 3.2.3.
102
The Department for Science, Technology and Innovation.
103
Congress of Colombia (2011) Law 1508 ("PPP Law").
104
Congress of the Philippines (1993) The Philippine BOT Law Republic Act No. 7718, Rule 2, pp16-19.
105
Government of South Africa (2004) PPP Manual.
106
As described in Public Private Infrastructure Advisory Facility (2007) Public Private Partnership Units:
Lessons for their Design and Use in Infrastructure. World Bank.
72
BOX 2.15: The Evolution of the UKs PPP and Infrastructure Units
The United Kingdoms Treasury Taskforce (TTF) was established in 1997 within
HM Treasury as a central coordination unit for the rollout of the Private Finance
Initiative (PFI). It was designed to assist public sector bodies to improve the
107
The European PPP Expertise Centre (EPEC) (2014) Establishing and Reforming PPP Units: Analysis of
EPEC Member PPP Units and Lessons Learnt.
73
The design of a PPP unit should reflect its functions.108 For instance, units that
focus on regulating and controlling the PPP process should generally be located
in finance ministries or planning agencies. If a PPP unit is undertaking
multiple functions, it needs to be designed to avoid potential conflicts of interest.
If a unit is guiding, advising, and approving PPPs, then it needs to ensure there
are internal firewalls, that it involves other entities involved in approvals, or that it
brings in additional scrutiny by audit or other oversight agencies.109
Typical choices in the creation of a PPP unit will include the following;
108
Public Private Infrastructure Advisory Facility (2007) Public Private Partnership Units: Lessons for their
Design and Use in Infrastructure. World Bank.
109
Dutz, Harris, Dhingra & Shugart (2006) Public Private Partnership Units: What Are They, and What Do
They Do? World Bank Public Policy for the Private Sector.
74
Resourcing: How will it attract and retain the right talent to a public sector
organization? Specifically, how can it attract legal and financial skills when
equivalent positions in the private sector can be significantly better paid?
Staffing PPP units may in turn have an impact on how they are structured
and governed; and
75
110
Market players interpreted this move as a response to the fact that the heavy regulation of PPP
development had virtually shut down the pipeline of projects. PPPs at the municipal level stopped
completely. (Personal communication with James Leigland, Technical Assistance Facility (TAF), Private
Infrastructure Development Group (PIDG), South Africa).
111
South Africa National Treasury PPP Unit (2007) Municipal Service Delivery and PPP Guidelines.
112
Colombia also has two other PPP Units. One is located in the Ministry of Finance and is responsible for
the fiscal aspects of PPP projects. The other unit is housed in the Ministry of Transport, which is
responsible for PPP projects related to highways and roads.
113
Congress of Colombia (2011) Law 1508 ("PPP Law").
114
Parliament of Uruguay (2011) Law 18786 ("PPP Law"), Articles 9-13, 23, 38.
76
115
President of Peru (2008) Legislative Decree No. 1012, Article 9.
116
Legislative Assembly of the State of Sao Paulo, Brazil (2004) Law 11688 ("PPP Law"). Article 12-18.
117
Government of Jamaica (2011) Government of Jamaica Policy Framework and Procedures Manual for
Privatization of Government Assets Draft.
118
Legislative Assembly of the State of Sao Paulo, Brazil (2004) Law 11688 ("PPP Law") pp.1.
119
BANOBRAS (2000) FONADIN Reglas de Operacion (Rules of Operations) Title One, Chapter IV, Rule
5.13, Title Two, Chapter II, Rule 8.6, Title Three, Chapter IV Rule 18).
120
BANOBRAS (2000) FONADIN Reglas de Operacion (Rules of Operations) Title One, Chapter IV, Rule
5.13, Title Two, Chapter II, Rule 8.6, Title Seven, Chapters I-VI, Rules 37-56.
121
Public Private Partnership Office Bangladesh: Prime Ministers Office (2015). Welcome to PPP
Bangladesh. Available at http://www.pppo.gov.bd/
77
PPP units may bring risks and pitfalls to the project and program management if
they are not properly designed. Firstly, if there is a lack of clarity in the units role,
it may end up as another entity worsening, not improving, coordination. Similarly,
the unit may become a bottleneck for approvals if it has insufficient resources to
undertake appraisals. Finally, when various entities want to control the PPP unit,
it may lead to conflict in its design, leading in turn to delays in the creation of the
PPP framework and delivery of the PPP program.
Also, PPP units cannot perform miracles. PPP units will probably not help much
where high-level political commitment to a quality PPP program is lacking. PPP
units also need to be integrated into the mainstream project approval and
budgeting process in the government if they are to be successful. For example,
the fact that the BOT Center in the Philippines did not have strong institutional
links to either the Department of Finance or the Planning Agency posed
limitations in project preparation for many years.
Although PPP units are not always required, and will not always succeed in
creating successful PPP programs123, well structured PPP units have worked well
in many countries, as the above examples show.
122
Official Portal of Public Private Partnership Unit (2015). Message From Director General. Available at
http://www.ukas.gov.my/en/perutusan-ketua-pengarah
123
Public Private Infrastructure Advisory Facility (2007) Public-Private Partnership Units: Lessons for their
Design and Use in Infrastructure. World Bank.
78
79
Direct liabilities
During the appraisal stage, the value of the direct fiscal commitments required
can be estimated from the project financial model (described further in chapter 4).
The value of these direct payment commitments is driven by the project costs
and any non-government revenues. The value of the direct fiscal contribution
required is usually the difference between the cost of the project (including a
commercial return on capital invested) and the revenue the project can expect to
earn from non-government sources such as user fees.
The fiscal cost can be measured in different ways.
124
Harrison (2010) Valuing the Future: The Social Discount Rate in Cost-Benefit Analysis. Australian
Government Productivity Commission.
81
Contingent liabilities
Assessing the cost of contingent liabilities is more difficult than for direct
liabilities, since the need for, timing and value of such payments are uncertain.
Broadly speaking, there are two possible approaches.125
125
As described in the Infrastructure Australia Guidance Note (2008) National Public-Private Partnership
Guidelines Volume 4: Public Sector Comparator Guidance.
82
126
Ministerio de Hacienda y Credito Publico (2005) Pasivos Contingentes - Colombia (Contingent
Liabilities).
127
Dipres (2010) Informe de Pasivos Contingentes. Government of Chile.
128
Irwin and Mokdad (2010) Managing Contingent Liabilities in Public-Private Partnerships: Practice in
Australia, Chile, and South Africa. World Bank/Public Private Infrastructure Advisory Facility.
129
Peru Ministerio de Economia y Finanzas.
130
OECD (2008) Public Private Partnerships: In Pursuit of Risk Sharing and Value for Money.
83
131
As highlighted by OECD (2008) Public Private Partnerships: In Pursuit of Risk Sharing and Value for
Money.
132
Congress of Colombia (1998) Law 448 (on managing contingent liabilities of government entities), Article
6.
84
85
133
Ministry of Finance (2006) Economic Survey, 2005-06. Government of India.
134
Leases for government buildings are an obvious example.
135
Lei Complementar No. 101 (2000) Articles 29, 30, and 32.
86
136
As described in Cebotari (2008) Contingent Liabilities: Issues and Practice.
137
Ibid.
87
138
Castalia (2009) Benchmarking Indonesia's PPP Program.
139
Congress of Colombia (1998) Law 448 (on managing contingent liabilities of government entities),
Articles 3-8.
140
Governor of the State of Sao Paulo (2004) State Decree 48.867, Article 15.
141
Castalia & WBI (2011) Subsidy Funding Mechanisms for Public Private Partnerships in Latin America.
88
142
More information about the IIGF is available on its website: http://www.iigf.co.id/Website/Home.aspx
143
International Monetary Fund (IMF) (2001) Government Finance Statistics Manual.
144
International Monetary Fund (IMF) (2007) Manual on Fiscal Transparency.
145
OECD (2002) Best Practices in Budget Transparency.
89
146
In addition to potentially favoring PPPs when there are restrictions on debt or the budget, when PPP
accounting depends on risk transfer (for example ESA 2010) this may influence the PPP structure by
incentivizing the government to transfer more risk than the optimum, therefore destroying the VfM of the
PPP.
147
As of January 2012, no government has fully adopted IPSAS standard 32, so it remains to be seen how it
will be interpreted in practice.
148
International Public Sector Accounting Standards Board (2011) IPSAS 32 Service Concession
Agreements: Grantor.
90
149
Schwartz, Corbacho and Funke (2007) Public Investment and Public-Private Partnerships. International
Monetary Fund.
150
Cebotari (2008) Contingent Liabilities: Issues and Practice.
91
151
For New Zealand, see http://www.treasury.govt.nz/government/financialstatements; for Australia, see
http://www.finance.gov.au/publications/commonwealth-consolidated-financial-statements/.
152
Dipres (2010) Direccin Presupuestaria from the Ministerio de Hacienda of Chile.
153
President of Peru (2008) Legislative Decree No. 1012.
92
However, creating PPP specific limits distinct from other limits on public
expenditure can simply create incentives for agencies to choose public
procurement over PPP even when PPP would provide better Value for Money.
An alternative, therefore, is to incorporate limits on PPP commitments within
other fiscal targets. For example, some governments introduce targets or limits
on public debt. Some types of PPP commitment may be included within
measurements of public debt, following international norms or national rules. In
such cases, an appropriate approach could be to establish a limit on debt plus
PPP commitments. In any control on total PPP exposure, a difficult issue will be
whether to include contingent liabilities, and if so, how to value them.
When aggregate exposure is limited, each PPP will have to be tested against
such overall limits, under the respective appraisal exercises as part of the
approval process (see chapter 4.11).
154
Irwin and Mokdad (2010) Managing Contingent Liabilities in Public-Private Partnerships: Practice in
Australia, Chile, and South Africa. World Bank/Public Private Infrastructure Advisory Facility.
155
Brazil, Presidency of the Republic (2004) Law 11079 ("Federal PPP Law").
93
The entities and groups outside the executive with a role to play in ensuring good
governance of the PPP program can include:
94
The public: The public can directly participate in PPP project design. This
can be done through consultation processes and in monitoring service
quality, if provided with channels for feedback. The transparency of the
PPP process as a whole, and an active media, can inform public opinion
and if the issues are serious enough influence elections. The role of the
public is explored further in section 1.9.3; and
Defining the PPP legal framework and policy: The PPP framework is
often established in specific PPP legislation. As described earlier in this
chapter, one rationale for introducing a PPP law is to enable the legislative
branch of government to set rules for how PPPs will be developed and
implemented, against which those responsible can be held accountable;
156
Irwin (2007) Government Guarantees: Allocating and Valuing Risk in Privately Financed Infrastructure
Projects. World Bank.
157
Congress of the Republic of Guatemala (2010) Ley de Alianzas para el Desarollo de Infraestructura
Econmica (Law of Partnerships for the Management of Economic Infrastructure).
95
158
Committee of Public Accounts (2005) London Underground Public Private Partnerships: 17th Report of
Session 2004-2005.
159
Public Accounts and Estimates Committee, Parliament of Victoria (2006) Report on Private Investment in
Public Infrastructure, Seventy First Report to the Parliament.
96
160
See http://www.intosai.org/about-us/organisation/membership-list.html
161
INTOSAIs International Standards of Supreme Audit Institutions (ISSAI) 100 sets out basic principles in
government auditing. Paragraphs 34-44 describe the mandates of audit institutions, and define regularity
and performance audits.
162
INTOSAI (2007) Guidelines on Best Practice for the Audit of Public/Private Finance and Concessions
(revised).
97
All major aspects of the deal that have a bearing on Value for Money, such
as required actions, outputs, and timing of delivery;
163
ibid.
98
It may be useful for the PPP program as a whole to be audited after it has been
working for some time. Program-based audits should focus on providing
recommendations for improving the program. Box 2.26 provides an example.
164
Auditor General Victoria (2005) Franchising Melbournes Train and Tram System Victorian Government
Printer. Available at: http://download.audit.vic.gov.au/files/ptfranchising_report.pdf.
99
100
101
166The new World Bank Group guidelines on disclosure of information (Guide to Disclosure in Public-Private
Partnership Projects) is based on the former report Disclosure of Project and Contract Information in Public-
Private Partnerships with further analysis, widening the scope to include both pre and post-procurement
information disclosure. It includes an analysis of reasons, benefits, and challenges as well as specific
intelligence on handling confidentiality issues and detailed guidelines to develop a disclosure framework
(including standard clauses and templates). These guidelines are complemented by a detailed study on a list
of jurisdictions and an analysis of case studies.
103
Source: Office of the Contractor General of Jamaica (2011) Special Report of Investigation: Allegations
Regarding the Proposal for the Financing, Development, Ownership, and Operation of a FSRU LNG
Re-Gasification Terminal and Natural Gas Transportation System available online at
http://www.japarliament.gov.jm/attachments/628_OCG%20LNG %20Special %20Investigation
%20Report%20Part%201.pdf.
167
State of Victoria (2014) Managing Probity Procurement Guide. [Online] Available at
www.procurement.vic.gov.au
104
2 PPP Framework
1 Infrastructure Australia (2011) Detailed guidance material for implementing
National PPP Guidelines, Volume 2: agencies on how to implement PPP projects
Practitioners Guide, Commonwealth under the national PPP policy. This includes
of Australia project identification, appraisal, PPP
structuring, the tender process, and contract
management. There is detailed guidance in
the annexes on technical subjects.
2 Government of Colombia (2014) Guides for civil servants from national,
Gua de Asociaciones Pblico regional, and local governments. It sets out
Privadas, Departamento Nacional de in detail the processes and requirements for
Planeacin (Guidance for PPP identifying, assessing, preparing, tendering,
Development) Departamento and implementing PPP contracts.
Nacional de Planeacin
and
Government of Colombia (2010)
Manual de Procesos y
Procedimientos para la ejecucin de
Asociacin Pblico Asociaciones
Pblico Privadas (Process and
Procedures Manual for PPP
Projects) Ministerio de Hacienda y
Credito Publico Subdireccion de
Banca de Inversion
106
107
108
109
110